Would HMRC flag this as recycling?

threlkeld53

I have £3.5k cash sitting in a SIPP. I intend to withdraw most of it in April 2021 and to put £2880 of it into my wife's SIPP. Once that is topped up with tax relief, she will withdraw £3600. She will then give me £2880 which I'll put back into my own SIPP, to which £720 will be added. 

The following tax year, I'll withdraw £3600 and once again put £2880 into my wife's. We intend to repeat this process each year until age 75.
 
I'm wondering if this would be flagged up by HMRC as recycling. We are both retired and have no incomes. We do have a joint bank account, so in the event that HMRC deduct tax at source and we reclaim it using P55 forms, I'm wondering if they would spot this? Or if they did, is it likely that they'd deem it as too small amounts to bother with?

Albermarle

There are various parameters that have to be met before recycling can be an issue.
One is that the amounts involved have to be over £7500 pa so no issue for you .

Linton

As far as HMRC is concerned for a pension contribution to be classified as recycling it would have to exceed £7500 of tax free money in a tax year.  There may be other considerations related to paying into your wife's pension but they dont matter because you are covered by the £7500 requirement anyway.

Shylock

So I can take £7,500 of my TFLS, pay it into my wife's Pension, she'll get 20% tax relief of £1,875 back on it, and I can repeat this every year until I've used up my TFLS?  Then we can reverse the process using my wife's TFLS into my Pot (providing I haven't triggered MPAA)?

Dazed_and_C0nfused

Then we can reverse the process using my wife's TFLS into my Pot (providing I haven't triggered MPAA)?

That might depend on how things are going with your wife at that point 😳

Shylock

Dazed_and_C0nfused said:

Then we can reverse the process using my wife's TFLS into my Pot (providing I haven't triggered MPAA)?

That might depend on how things are going with your wife at that point 😳

Fair Point.  But actually we could do it concurrently, not consecutively ie.. each year we take 7.5k TFLS and pay it into each others Pots.  The Exchequer will get their 20% back when we eventually start drawing down, but we pocket 80% of the gains on the second lot of tax relief?  

Dazed_and_C0nfused

If you are using UFPLS then you are paying an effective tax rate of 15% not 20%.

That is where the 6.25% gain (ignoring investment returns) for basic rate taxpayers comes from.

pensionpawn

Or you could take more than £7k5 and top your wife's SIPP up to £40k / her salary, whichever is the lowest, pa. I may increase my contributions by £7k5 however my main driver is accelerating the growth of my wife's pot (doubling it) over the next 2.5 years so that we can both draw down our tax allowances in retirement. She's lucky enough to have an employer who will match her up to 10% so the plan is to top that up to 95% (margin of error) over the current and next two tax years if the Chancellor doesn't torpedo us in the March budget.

Albermarle

So I can take £7,500 of my TFLS, pay it into my wife's Pension, she'll get 20% tax relief of £1,875 back on it

To do this your wife would have to be earning a minimum £9375 gross( before tax ) . But you said 

We are both retired and have no incomes.

So hers ( and yours ) pension contributions will be limited to £2880 net - £3600 gross 

zagfles

Shylock said:

So I can take £7,500 of my TFLS, pay it into my wife's Pension, she'll get 20% tax relief of £1,875 back on it, and I can repeat this every year until I've used up my TFLS?  Then we can reverse the process using my wife's TFLS into my Pot (providing I haven't triggered MPAA)?

Only if she is earning (employment income etc) at least £9375 after any workplace pension conts.

Google "HMRC recycling rules" for loads of helpful articles.

Thrugelmir

threlkeld53 said:

 We are both retired and have no incomes. 

I assume that you are receiving pensions though as you must be living off something.